Aug. 28 (Bloomberg) -- Crude oil fell more than $2 a barrel after the International Energy Agency said it would tap strategic stockpiles if Tropical Storm Gustav disrupts energy production in the Gulf of Mexico.

The IEA coordinated the release of crude oil and fuel supplies after hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005. Gustav packed maximum sustained winds of almost 70 miles (113 kilometers) per hour at about 2 p.m. Miami time and may regain hurricane strength of at least 74 mph today, the National Hurricane Center said.

``The IEA is making the right soothing noises to calm the market,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Anyone who follows the industry would expect them to release supplies if there was a great deal of damage, but this is an emotional market and words can do a lot.''

Crude oil for October delivery fell $2.56, or 2.2 percent, to settle at $115.59 a barrel at 2:43 p.m. on the New York Mercantile Exchange. Prices are up 61 percent from a year ago. Oil has dropped 22 percent from a record $147.27 reached on July 11.

The IEA coordinated a stockpile release among its 27 members to counteract U.S. supply losses after the hurricanes in 2005. That response included the release of European gasoline supplies for shipment to the U.S., as well as crude oil and other refined products. The Paris-based agency was set up in 1974 in response to the Arab oil embargo.

Natural Gas Supplies

Prices also fell because U.S. stockpiles of natural gas, a competing fuel, increased more than analysts forecast. Supplies rose 102 billion cubic feet to 2.757 trillion cubic feet last week, the U.S. Energy Department said today. A gain of 84 billion was expected, according to a Bloomberg News survey.

``This is a really bearish natural gas number,'' said Kyle Cooper, an analyst at IAF Advisors in Houston. ``All attention was focused on the storm before the report.''

Natural gas for October delivery tumbled 55.8 cents, or 6.5 percent, to settle at $8.05 per million British thermal units in New York.

Gustav may halt 1.27 million barrels a day of crude oil production if it strikes the Central Gulf Coast, Angela Montoya, a meteorologist at Weather Insight, LP, in Houston said.

``If the storm remains on this track, prices will start to rise again,'' said Tom Bentz, a broker at BNP Paribas in New York.

There is a 70 percent to 75 percent chance of the storm reaching the Gulf, by which time it will likely be a Category 3 hurricane, according to Weather Insight. A Category 3 hurricane has winds of at least 111 miles (179 kilometers) an hour.

Gulf of Mexico

The Gulf of Mexico is home to 26 percent of U.S. oil output and 14 percent of the country's gas production. Katrina closed 95 percent of offshore output in the region. Almost 19 percent of U.S. refining capacity was idled because of damage and blackouts caused by Katrina and Rita.

Gustav is the seventh named storm of the Atlantic hurricane season, which runs from June 1 through Nov. 30. The National Oceanic and Atmospheric Administration's forecasters predict 14 to 18 named storms will develop this year.

Brent crude oil for October settlement fell $2.05, or 1.8 percent, to settle at $114.17 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: August 28, 2008 16:00 EDT